India to have strategic oil reserve by Oct 2011

India will complete building its first strategic crude oil storage by October 2011 in an effort to insulate itself from supply disruptions.

India, which is 75 per cent import dependent to meet its crude oil needs, is building under-ground storages at Visakhapatnam in Andhra Pradesh and Mangalore and Padur in Karnataka to store about 5.33 million tonne of crude oil.

This is enough to meet nation's oil requirement of 13-14 days. "The storage at Visakhapatnam will be mechanically completed by October 2011," said Rajan K Pillai, Chief Executive Officer of India Strategic Petroleum Reserves - the state-owned firm building the strategic stockpile.

Visakhapatnam will have capacity to store 1.33 million tonne of crude oil in underground rock caverns. "Huge underground cavities, almost ten storey tall and approximately 3.3 km long are to be built (in Visakhapatnam)," he said.

A similar facility in Mangalore will have a capacity of 1.55 million tonne and would be mechanically completed by November 2012. A 2.5 million tonne storage at Padur, near Mangalore, would be completed by December 2012.

India will join nations like the US, Japan and China who have strategic reserves. These nations use the stockpiles not only as insurance against supply disruptions, but also to buy and store oil when prices are low and release them to refiners when there is a spike in global rates.

However, the storage India is building is very small compared to the 90-day strategic stockpile in the US. The Indian govt was considering to raise the storage capacity to 15 million tonne to cover for 45 days requirement but no decision has been taken as yet.

The over 5 million tons strategic storage facility, Pillai said, was being built at an estimated cost of Rs 2,397 crore (at 2005 prices). "There is likely to be a price escalation because these cost estimates are based on 2005 prices. We think the cost may cross Rs 3,000 crore," he said.

ISPRL is a wholly-owned subsidiary of Oil Industry Development Board (OIDB) - a government body that lends money to energy projects. Pillai said the cost of building the strategic stockpile is being provided by OIDB as equity to ISPRL.

"The three storages will be able to meet nation's oil requirement of 13-14 days (in case of emergency)," he said. The cost estimate does not include the cost of purchasing 5.3 million tons of crude oil.

"The crude procurement and how it will be managed will be the responsibility of the government. Our job is to build the storage," he said.

Like the US, the government may buy crude oil when rates are low for stockpiling. It may release it to refiners during times of spike in global crude rates like those witnessed in July 2008, when prices touched an all-time high of $147.

Source: Business standard

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